6/12/2008 @ 6:30PM

This Bud's Not Necessarily For You

Investors considered the unsolicited $46.4 billion bid for Anheuser-Busch by its Brazilian-Belgian competitor InBev and apparently found it wanting on Thursday.

Stock in
Anheuser-Busch
, brewer of Budweiser and Michelob beers, jumped Thursday following a $65-per-share, unsolicited all-cash take-over offer, made by Belgium-based InBev late Wednesday after weeks of rumors that such a bid would occur.

Anheuser-Busch shares traded up $3.05, or 5.2%, to close at $61.40, on Thursday. Still, it remains 5.5% below the InBev offer, a sign investors have doubts that the deal will go through.

Earlier in Europe,
InBev
shares jumped 6.2%, or 2.92 euros ($4.50), to 50.21 euros ($77.42), which shows the market thinks the offer is a good deal from InBev’s pespective, perhaps too good given the discount on the Anheuser shares.

The price offered by InBev is an 11.4% premium to Anheuser’s Wednesday closing price of $58.35, but it seems the target company’s board, greatly influenced by the Busch family, will resist. Resistance in part could be attributed to angst about a foreign company acquiring a well-known American brand. Also, the all-cash offer means Anheuser’s shareholders would be left with no stake in Inbev, poised to be the largest brewer in the world if the takeover goes through.

Members of the founding family of the St. Louis-based company, the Busches, have expressed opposition to a deal with InBev, though they do not control enough shares to derail one without cooperation from other shareholders. There has also been intense criticism in St. Louis and elsewhere of the possible sale of such an iconic American brand to a foreign company.

The beer industry is experiencing a wave of consolidation, in part as a means to counter the rising costs of key ingredients like wheat, with
SABMiller
and
Molson Coors Brewing
aiming to combine their American units, while Scottish & Newcastle has agreed to be broken up by
Carlsberg
and
Heineken
.

Something that may play a role in whether or not the deal goes through is Anheuser-Busch’s joint venture with Grupo Modelo, brewer of the Mexican beer Corona. Modelo might see the Inbev proposal as a chance to buy back Anheuser’s half of the joint venture, but it is unlikely that Bud would go for it, said Douglas Cogen, co-chair of the mergers and acquisitions group at Fenwick & West.

If Anheuser-Busch, on the other hand, purchased Modelo’s half of the profitable joint venture, something that is rumored to happen, it would add $10.0 billion to $15.0 billion to its value, making it more difficult for InBev to follow through with the deal, Cogen said.

When asked about the rumors of a Modelo buyout, Anheuser-Busch’s chief financial officer,
W. Randolph
Baker
W. Randolph Baker
, told Forbes.com in an email, “It is our policy to not confirm, deny or speculate on rumors of potential investments, acquisitions, mergers, new business partnerships or other transactions.”

InBev itself is the result of a brewing mega-merger, the 2004 amalgamation of the Belgian Interbrew and the Brazilian Ambev. Its brands include Stella Artois and Beck’s.

Philip Durell, senior analyst at The Motley Fool, said that Anheuser-Busch “deserves to have someone come in and take over the business,” noting that in the past five years, earnings per share have only increased slightly, and mostly due to share buybacks, not from real growth.

“Cash-flow characteristics at Anheuser are fantastic but the problem is growth,” Durell said, adding that Inbev would do very well to acquire Anheuser-Busch given its comprehensive distribution lines in America and the beer’s reputation as a premium import in overseas markets. “If I owned Bud shares now,” he said, “I’d be rubbing my hands together” at the financial prospects.

Durrell set Anheuser’s valuation at $58 to $60 as a standalone company. In a take-out situation he would raise the price to the high-$60s. The synergies between InBev and Anheuser, he said would be “an absolute powerhouse.”

It is the duty of Anheuser’s board to carefully evaluate all alternatives to the proposed InBev acquisition, Cogen said, and, if it decides to go through with the sale, it must get the best price for shareholders. But he said a premium to the prior trading price is not necessarily a fair price and a fair price is not necessarily an adequate price.

Cogen added that the acquisition would be a particularly good fit given that there is limited geographic overlap between Anheuser-Busch and InBev’s home markets and both are focused on growth in China and other emerging markets.

If the deal goes through, Inbev would be the world’s largest brewer. SABMiller, maker of Miller Lite, Peroni and Pilsner Urquell beers, currently holds the title. (See SABMiller Left Bitter By InBev)